Why did Transition Economies Choose Mass Privatization

In many transition countries privatization has taken the form of distribution of states assets at a zero price (mass privatization), and the state has retained some ownership in many companies.We provide a rationale for these policies in terms of a political feasibility constraint, preventing sale at a negative price. The government may choose to retain some ownership in order to make the constraint bite, in effect raising its bargaining power. As a result, mass privatization may actually have been revenue-maximizing; that is, may have been rational in an economic sense, as well as in the political sense previously claimed. (JEL: L33, P21) Copyright (c) 2005 The European Economic Association.